Our Oracle Stock Pick Is Down, But Stabilizing. Buy More. -- Barrons.com

By Jacob Sonenshine

A lot has happened with Oracle Corp., our stock pick from March. This is a moment to buy more shares.

When we recommended the stock, our thesis was that Oracle likely had no more plans for further borrowings; its artificial intelligence business would prove successful; and its capital expenditures would pay off. Those predictions were hardly supported by the consensus market view at the time. Investors haven't come around yet, either; The stock has fallen about 1% since we made the pick, while the S&P 500 has climbed about 15% over that span.

Rising interest rates have increased borrowing costs, pressuring the valuation of a company that now has almost $90 billion of net debt. Earlier this week, news that co-founder Larry Ellison had adopted a plan to sell up to 50 million shares didn't help. That plan has since been canceled.

The stock is now trading around $150, a touch above the middle of its range of recent months. But we're more bullish than ever.

Oracle fell to a multiyear low of just under $115 in late July, climbed to $162 this month, dropped again, and is now seeing buyers come in at just over $140. That has been a level of consistent support since early August. Buyers also came in to send shares higher after a strong earnings report last week.

"We believe the washout has happened," Chris Shaffer, co-founder at Talaria Capital Management, says. "However, if you purchased higher, we do not hate lowering your cost basis and averaging down on the position."

Essentially, a drop toward $115 would likely make the stock even more attractive, particularly because Oracle's business appears headed in the right direction.

Last week, the company reported that total sales rose 30% year over year to $19.3 billion in its fiscal first quarter, beating analysts estimates of $19.1 billion. Driving that growth was the cloud infrastructure as a service segment; its sales jumped 121% to $7.4 billion from a year earlier, beating estimates of $7.1 billion. That business sells compute capacity to companies building artificial-intelligence models, namely OpenAI.

Oracle also achieved a better-than-expected adjusted operating margin of 42% in the quarter, up from just over 41% a year ago. The improvement in margins came even as specific costs related to its data-center buildout, which supports the AI capabilities, surged.

The relatively strong margin boosted earnings per share to $1.92, up 31% and 18 cents better than expectations. The earnings beat helped Oracle burn less cash than expected.

Looking ahead, guidance was equally constructive. Management said to expect "at least" $90 billion in revenue for the full 2027 fiscal year ending in late May. (That was a more optimistic way to phrase the same figure it guided for the previous quarter, when the phrase "at least" was absent). Revenue is likely tracking at a faster rate now. As a result, the company modestly increased fiscal 2027 EPS guidance.

Those higher earnings are key for return on investment.

The first quarter's results paint a picture of a business positioning itself to generate cash for shareholders. Capital expenditure guidance didn't worsen; management says to expect just over $90 billion in 2027 capex, the same as the previous quarter's forecast, and that number should eventually decline. Relatedly, Oracle isn't borrowing any more money right now. All in, Oracle appears on track to generate over $20 billion in free cash flow that analysts model a few years from now.

The best news of all for Oracle is that OpenAI is arguably becoming less of a risk. The market has expressed some concern over the past year that the ChatGPT parent ultimately may not spend the full $300 billion over five years in its agreement with Oracle to buy compute. But OpenAI received financing earlier this year, and there were reports this week that it may soon pursue another round of financing before going public. That eases concerns that it won't consume the full extent of the services offered in the contract, endangering Oracle's ability to meet revenue and profit expectations.

"We continue to view the stock as an attractive opportunity for long-term capital appreciation for a number of reasons including [that] Oracle offers a differentiated full-stack AI platform, linking data center capacity," Citizens Financial analyst Patrick Walravens writes.

All of this means Oracle is worth far more than it's trading for. It is growing per-share earnings faster than the S&P 500, is on track to generate cash by 2030, and trades at just under 17 times forward earnings, versus the S&P 500's 19 times. When the market was more confident in Oracle in early June, the stock traded at 30 times.

A return to that multiple-without even considering rising EPS-would boost the stock by 78%.

So instead of trying to time the stock perfectly, just buy it here, given the potential upside. Shaffer put it best: "Do we want to be really picky with the bottom? We think the risk/reward is in our favor at these levels."

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September 18, 2026 04:13 ET (08:13 GMT)